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Weekly ETF Monitor for week ending 28 June 2019

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Jul 02, 2019

This week's highlights Global equity markets softened last week ahead of the resumption of U.S.-China trade talks. Resources and commodity stocks outperformed last week as safe-haven assets gained favour. Gold reached new 6-year highs moving above US$1,400 per ounce, while OZR, QAU and MNRS were amongst the top performers. The worst performers over the week were actively managed products MGE, MHG and MICH. With real estate and infrastructure products generally having a downward trend. Total flows into domestically domiciled ETFs were $342m, while outflows totalled $17m for the week. The biggest inflows were into broad-based domestic equity funds (STW, A200 and MVW) as well as cash (AAA and BILL) and a range of equity and fixed income funds. ETFS Physical Gold (GOLD) saw A$24.5m of inflows for the month of June. STW was the most traded fund last week, while VAF and GOLD saw above average volumes. ETFS Physical Gold (GOLD) and ETFS Physical Precious Metals Basket (ETPMPM) both hit since inception highs last week.

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Weekly ETF Monitor for week ending 21 June 2019

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Jun 25, 2019

This week's highlights Risk assets rallied last week on rate-cut expectations in the U.S. and eurozone. Resources and commodity stocks outperformed. Gold mining ETFs (GDX and MNRS) were amongst the top performers for the week, while China and Asia-Pac ETFs performed strongly across the board. ETFS S&P Biotech ETF (CURE) returned 6.4% for the week. Gold rallied above US$1,400 for the first time since 2013 and hit new all-time highs in Australian dollar terms. GOLD returned 2.8% for the week. Oil (OOO) returned 8.8% for the week following the Iran drone attack. Total flows into domestically domiciled ETFs were $182m, while outflows totalled $71m. The biggest inflows were into Russell Australia Responsible Investment ETF (RARI), broad based Australian equity funds (IOZ, A200 and STW), a range of domestic fixed income/hybrid funds (HBRD and AAA) and GOLD. STW and AAA were the most traded funds last week, while GOLD and GEAR saw above average volumes. ETF Securities launched Australia’s first India ETF on Friday; ETFS Reliance India Nifty 50 ETF (NDIA), which tracks the Nifty50, India’s flagship benchmark index.

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Weekly ETF Monitor for week ending 14 June 2019

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Jun 18, 2019

This week's highlights Resources and commodity stocks outperformed last week, dominating the top performing ETFs for the week. Palladium continued its renewed rally, with ETPMPD returning 8.8% for the week. S&P/ASX 200 Resources Sector funds (QRE and OZR) returned close to 5%, while agriculture (QAG), precious metals (ETPMPM) and gold miners (GDX) all gained in excess of 4%. China rallied on economic stimulus measures despite the Hong Kong protests with both CNEW and CETF amongst the top performers. Oil (OOO), energy company (FUEL) and long Australian dollar (AUDS) funds were amongst the poorest performers for the week. Total flows into domestically domiciled ETFs were $73m, while outflows totalled $11m. The biggest inflows were into VanEck Vectors Australian Equal Weight ETF (MVW) and a range of domestic fixed income/hybrid funds (CRED, HBRD and IAF). AAA was the most traded fund last week, while CRED and VAP saw above average volumes. ETFS Morningstar Global Technology ETF (TECH) returned 1.5% for the week and is up 18.5% year-to-date. It provides exposure to the global technology sector with a tilt to attractively valued firms, using Morningstar’s moat methodology.

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Weekly ETF Monitor for week ending 7 June 2019

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Jun 12, 2019

This week's highlights This week saw the RBA cut rates to 1.25% after 33 months on hold. Australian Financials and Materials rallied but this was not a match for the performance across some global and U.S. strategies. The top performers for the week were BetaShares Geared US Equity Fund - Ccy Hedged (GGUS) up 10.3% and BetaShares Global Gold Miners ETF (Hedged) (MNRS) up 5.5%. The worst performers over the week were the BetaShares US Equities Strong Bear HF - Hedged (BBUS) down -9.4% and VanEck Vectors China New Economy ETF (CNEW) down -5.9%. Chinese markets pricing is the latest in the U.S.-China trade wars. Looking longer term, bear strategies with exposure to U.S. and Australian markets are the worst performers over the year-to-date and last 12 months. BetaShares Australian Equities Strong Bear (BBOZ) down -31.7% YTD. The best performers over 12 months remain ETFS Physical Palladium (ETPMPD) up 43.2% and VanEck Vectors Australian Property ETF (MVA) up 30%. Looking at flows over the week there were $294 million in outflows and $87 million in inflows for ETFs. The outflows were from BetaShares Australia 200 ETF (A200) with outflows of $135 million and BetaShares Australian High Interest Cash ETF (AAA) with outflows of $93 million. VanEck Vectors Australian Equal Weight ETF (MVW) saw the largest inflows of $18 million.

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Weekly ETF Monitor for week ending 31 May 2019

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Jun 04, 2019

This week's highlights Trump’s tariff threats returned to centre stage last week hitting equity markets across the globe, while speculation mounted on potential activity from the RBA, Federal Reserve and ECB in coming weeks. Defensive sectors such as energy, consumer staples and utilities underperformed, with ETFs such as ZYUS, MOAT, VVLU and QUS all amongst the poorest performers for the week. Emerging markets still managed to post gains, with VGE, EMKT, IEM and FEMX all returning at least 1.7%. Precious metals benefited from the risk-off sentiment with ETFS Physical Gold (GOLD) returning 0.8% for the week and gold mining funds (MNRS and GDX) topping the performance tables for long-only equities. Crude oil dropped substantially, with OOO down 8.7% for the week. Total flows into domestically domiciled ETFs were $120m, while outflows totalled $60m. The biggest inflows were into domestic fixed income, cash and hybrid ETFs (IAF, AAA and HBRD), while the biggest outflows for the week were from inflation-linked bond (ILB) and emerging market (IEM) ETFs. AAA was the most traded fund last week, while QPON saw above average volumes. STW saw a substantial reduction in trading volume. ETFS Physical Precious Metals Basket (ETPMPM) returned 0.9% for the week and is up 12.6% over the past 12 months. It provides diversified exposure to the four major precious metals and their different supply and demand drivers. Its current allocation is 50% gold, 25% palladium, 17% platinum and 8% silver.

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ETF Volatility - Truths and Misconceptions

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May 31, 2018

ETFSTrade idea:  ETF Volatility - Truths and Misconceptions In this week’s ETFS Trade idea, we look at the misconceptions around ETFs causing volatility and explain why these are myths. High level observations: ETFs have been unfairly targeted as the cause of market volatility ETFs tracking the ASX 200 have successfully stayed in line with the volatility of the benchmark ETFs can cause movements in the underlying market but so do active funds and investors buying securities directly In nearly all cases ETFs match the volatility of the market they track and this is what should be expected from an index tracking fund

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Conflicting signals in the U.S. - Time for caution?

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Apr 22, 2018

ETFSTrade idea – Conflicting signals in the U.S. - Time for caution? ETFS S&P 500 High Yield Low Volatility ETF (ZYUS) ETFS Physical U.S. Dollar ETF (ZUSD) The U.S. economy continues to surprise to the upside with markets rebounding strongly. Yet rising inflation, subdued long-term rates and geo-political risks remain a concern. For a defensive U.S. equity exposure, investors should consider ZYUS. Avoiding equity-risk and looking for currency? Consider ZUSD. In this week’s ETFS Trade idea, we look at the outlook in the U.S. for monetary policy, the economy and the dollar. We highlight two funds that can be used in different ways to play the U.S. story; ZYUS and ZUSD. Rate rises on the horizon… Market expectations for multiple rate rises from the U.S. Federal Reserve in the remainder of 2018 have firmed in recent weeks. The economy is still in expansionary territory, though inflationary concerns are becoming more pertinent. US Core CPI rose to 2.1% in March, its highest level in over a year, while March PPI numbers also exceeded expectations. The Fed Beige Book reported strong economic activity, but showed significant business concerns around Trump’s planned steel and aluminium tariffs. Figure 1 below shows the current probabilities the futures market is implying for Fed activity for the remainder of 2018, with two further hikes narrowly the most likely outcome. ...but longer-term growth concerns are becoming more pronounced. While short-term yields have been rising, the yield curve has seen a substantial flattening, with the difference between 2-year and 10-year Treasury yields at their lowest since late-2007 (see Figure 2). Speculation of a curve inversion is starting to emerge. Historically this would indicate that the peak of the current rate cycle is approaching and present a subdued outlook for growth. U.S. dollar weakness continues… Despite rising short-term rates, the U.S. dollar has been in a steady down-trend since early 2017, as shown in Figure 2. This can be partly attributed to President Trump’s rhetoric regarding trade and towards China, but also to a gradual unwinding of GFC-era flight-to-safety trades. …but political risks could be a catalyst With the impositions of tariffs and a potential trade with China, military action in Syria, sanctions against Russia and talks with North Korea on the horizon and February’s equity market volatility still fresh in the memory, there is no shortage of event risk candidates looming. With external events and any evidence of longer-term U.S. economic strength both likely to have a positive impact on the dollar, it appears that near-term risks may lie to the upside. Why ZYUS? ZYUS invests in U.S. stocks from the S&P 500 screened for both high yield and low volatility. As such, the fund tends to be overweight defensive sectors like utilities and real estate and underweight more volatile sectors like technology and financials. The S&P 500 Low Volatility High Dividend Index, which ZYUS tracks, has outperformed the S&P 500 by over 3.6% per annum over the past 10 years and has outperformed on a monthly-basis in over 70% of months during which the S&P 500 has posted a negative return. After underperforming the S&P 500 by over 9.5% in 2017, mainly due to its underweight to technology, ZYUS has recently picked up. Outperformance in March 2018 was over 3% as volatility hit the tech sector and risk-aversion appeared. ZYUS should be considered by investors wanting to maintain U.S. equity exposure, but take a more cautious view on growth and the landscape ahead. Why ZUSD? Investors looking for pure exposure to the U.S. dollar strengthening against the Australian dollar without taking on any equity risk may consider ZUSD, which tracks the exchange rate by investing in short-term USD deposits. How ZYUS invests ETFS S&P 500 High Yield Low Volatility ETF (ZYUS) is well positioned for investors for the following reasons: ZYUS captures the performance of a selection of 50 high yielding U.S shares selected from the S&P 500 Index and rebalanced twice annually. ZYUS initially screens stocks based on dividend yield, reducing the 500 stocks down to 75. ZYUS then selects the 50 stocks with the lowest volatility for inclusion and weights them according to their dividend yield. ZYUS has an MER of 0.35% p.a. ZYUS has a Recommended rating by Lonsec. How ZUSD invests ETFS Physical U.S. Dollar ETF (ZUSD) is well positioned for investors for the following reasons: ZUSD captures the performance of the U.S. dollar against the Australian dollar, by investing all of its assets in U.S. dollar bank deposits. ZUSD currently holds overnight USD deposits with Australia and New Zealand Banking Group Limited (ANZ), earning interest at 1.30% p.a. ZUSD has an MER of 0.30% p.a., making it the lowest cost U.S. dollar exposure available on the ASX. ZUSD has a Recommended rating by Lonsec.

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The Aussie yield ETF that challenges active managers

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Apr 09, 2018

ETFS Trade idea – The Aussie yield ETF that challenges active managers ETFS S&P/ASX 300 High Yield Plus ETF (ZYAU) In the wake of S&P Dow Jones Indices recently published SPIVA® report, this week we have taken a look at how our ETFs have fared against active managers over time. This note highlights ZYAU, which has produced strong excess returns since inception and outperformed many well-known active managers. Investors looking for cost-effective excess returns from domestic equities should consider evaluating ZYAU. In this week’s ETFS Trade idea, we look at the results of the SPIVA® Australia Scorecard released by S&P Dow Jones Indices last month and compare the performance of ZYAU to a collection of well-known active funds focused on Australian equity-income. SPVIA® Australia Scorecard 2017 S&P Dow Jones Indices have been publishing SPIVA® Scorecards for major markets since 2002 and have become leading contributors to the active versus passive debate worldwide. The SPIVA® Scorecards track the performance of active fund managers in each market against benchmark indices across a variety of categories and across multiple time horizons. Looking specifically at Australian large-cap equity funds, as at the end of 2017 59% of funds underperformed the S&P/ASX 200 Index. Over 3, 5 and 15 year periods, respectively, 67%, 63% and 77% of funds underperformed the national benchmark. An equally-weighted portfolio of active funds would have underperformed the benchmark over 1, 3, 5, 10 and 15 years. Similarly, in the mid and small-cap categories, 74% and 75% of funds underperformed the S&P/ASX Mid-Small Index over 1 and 3 years. How does ZYAU compare to active funds? ZYAU sits in-between a traditional active fund and a purely passive index tracker in the area commonly termed ‘smart-beta’ or ‘enhanced-alpha’. Smart-beta funds passively track an index, but the index they track has features that differentiate it from a standard market capitalisation-weighted index and aim to outperform a standard index in much the same way that active funds do. In the case of ZYAU, it tracks the S&P/ASX 300 Shareholder Yield Index, which aims to outperform the S&P/ASX 300 benchmark by selecting a sub-set of constituents based on ‘shareholder yield’ – a combined measure of dividend yield and buy-back yield. Because ZYAU’s investment strategy is pre-defined it has several potential advantages over active funds: its strategy is consistent, published and available for investors to evaluate and scrutinise its holdings are published in the public domain on a daily basis because it trades on exchange, investors can trade intra-day, unlike with many active funds because the fund does not require a team of fund managers to continually evaluate its holdings, it can charge management fees more in-line with passive index trackers. ZYAU’s stocks selections tend to be more “active” than many active funds, with its Active Share, or non-overlapping weight, versus the S&P/ASX 200 currently at 80.5%. This means that ZYAU can better compliment a core index holding in a portfolio. Table 2, below, shows comparative performances and headline management fees of ZYAU against a collection of well-known active funds that focus on Australian equity and equity income. Low Cost Firstly, to note, ZYAU’s management fee compares favourably to the active funds, as would be expected. ZYAU charges a fee of 0.35% p.a., which is below all of the active funds profiled and significantly below the average active MER of 0.83% p.a. Consistent Strong Performance With regards to performance, since its inception in June 2015, ZYAU has generated 2.19% p.a. excess return over the S&P/ASX 200, which puts it ahead of 16 of the 17 active funds. Only Bennelong Australian Equities Fund has outperformed, due to a very strong start to 2018. In the calendar year 2017, ZYAU outperformed the S&P/ASX 200 by 0.63% and beat 14 of its 17 active peers. In 2016, ZYAU outperformed 16 of the 17 active funds profiled and produced 5.42% of excess return over the benchmark index. Since inception, ZYAU has delivered strong performance at a fraction of the cost of many of its active peers and should be, therefore, considered by investors looking for cost-effective excess returns. How ZYAU invests ETFS S&P/ASX 300 High Yield Plus ETF (ZYAU) is well positioned for investors for the following reasons: ZYAU captures the performance of a selection of 40 high yielding Australian shares selected from the S&P/ASX 300 Index and rebalanced twice annually. ZYAU initially screens stocks based on liquidity, free cash flow to equity and dividend growth rates. This excludes stocks that are illiquid, are returning more cash to shareholders than they are earning, or have recently cut their dividend payouts. ZYAU then selects the 40 stocks with the highest shareholder yields for inclusion and weights them according to a mix of shareholder yield and market capitalisation. ZYAU has an MER of 0.35% p.a. ZYAU has a Recommended rating by Lonsec.

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Eurozone Outlook for 2018

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Mar 22, 2018

Eurozone Outlook for 2018 Trade idea – ETFS EURO STOXX 50® ETF (ESTX) Economic growth in the eurozone is at the highest level in a decade and the outlook is positive for 2018. ECB stimulus remains intact as inflation remains subdued and the euro continues to strengthen. Political headwinds tapered significantly in 2017, though some hurdles remain on the radar. ESTX provides low cost exposure to the blue-chip eurozone companies driving European growth and offers unhedged upside to a further strengthening euro. In this week’s ETFS Trade idea, we look to the European economic and political outlook for 2018 and highlight potential opportunities as well as some challenges on the horizon. Eurozone economy growing at fastest pace in a decade European data continues to paint a picture of an economy on the up, with positive momentum predicted to carry into 2018. Eurozone GDP grew at a rate of 2.7% in 2017 and the outlook remains positive, with the IMF forecasting growth to remain above 2% for at least the next two years. Moreover, while much of the initial impetus had come from the powerhouses of Germany and France, the periphery has now started to follow suit. Labour markets are looking strong, with unemployment across the region continuing to plummet and wage growth picking up. Despite slipping slightly in February, sentiment remains high, with economic and consumer confidence both at levels last seen in 2001. PMI data remains positive and there are signs that excess capacity is shrinking as economic growth gathers pace. Monetary policy outlook remains stable In the face of an expanding economy, the monetary policy outlook is surprisingly stable. Monetary stimulus in the form of the ECB’s unprecedented asset-buying programme is likely to remain. Inflationary pressures appear subdued, with CPI falling from 1.5% in November to 1.4% in December, well below the ECB’s target level of 2%. The strength of the euro is also aiding the stimulus impact by reducing inflationary pressure from imported goods. In US dollar terms, the euro has appreciated by over 17% since the start of 2017. In historical terms, the currency is currently sitting close to its long-term average level, and many analysts are predicting further appreciation in 2018. Political risks remain on the horizon Political risks, so prominent in the European dialogue over the past decade, took a back seat to the improving economy in the second half of 2017. French, Dutch and German elections took place without major incident as the anti-EU populist threat appeared to dissipate. Italian elections last week saw a move away from the establishment parties. Whilst details on policy directions have yet to emerge, the equity markets in Italy and across Europe have reacted positively this week. Other risk events likely to have a bearing on the shape of Europe this year include the ongoing Brexit negotiations and developments in the Catalan push for independence. How to invest in the eurozone? ETFS EURO STOXX 50 ETF (ESTX) is well positioned for investors for the following reasons: ESTX captures the performance of the 50 largest corporations in the eurozone – all significant global players in their fields. ESTX tracks the world’s most widely traded European benchmark index – the EURO STOXX 50 Index. ESTX is unhedged with respect to currency movements; meaning that investors benefit from a strengthening euro or weakening Australian dollar and vice-versa. No UK companies are included in ESTX, making it somewhat Brexit remote compared to other panEuropean funds. ESTX is the joint lowest cost Europe-focused ETF on the ASX with an MER of 0.35% p.a. ESTX is domiciled in Australia so there are no W8-BEN tax forms for investors to complete and US estate tax is not applicable ESTX has Recommended rating by Lonsec.

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With Volatility Picking up, why Don't you Consider Owning Gold?

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Feb 09, 2018

With volatility picking up, why don’t you consider owning gold? Trade idea – ETFS Physical Gold (GOLD)/ ETFS Physical Singapore Gold ETF (ZGOL) Volatility has returned to the markets Downside risks have increased dramatically Gold has been consistently one of the best portfolio hedges against geopolitical risk and inflation Below we take a further look at why you should be holding gold There are three reasons why you should own gold. 1) Portfolio protection against volatility 2) Inflation hedging 3) Event risk hedging Points 1 and 2 have recently increased from “no concern” or “neutral” in investors’ minds to “serious concerns” so we believe that all advisers and planners should be considering including gold in their client portfolios, as it’s one of the most historically reliable hedges in such circumstances. Gold protects portfolios against negative equity volatility Just last week we had an example of gold performing as an event risk hedge when equity markets plummeted and the gold price surged upwards. On 5th February, we saw global equity markets fall with the S&P 500 down 4.1% and the ASX 200 down 1.6%, meanwhile the gold price was up 0.5% in USD terms as investors were turning risk averse. The year-to-date performance chart on the right highlights the price actions of the day. (Source: Bloomberg, data as of 13th February 2018) Historical performance is not an indication of future performance and any investments may go down in value. Gold against inflation Gold is also widely viewed as a tool against inflation. Historically, the gold price tends to appreciate when inflation and interest rates are on the rise. The chart below shows how the gold price moves largely in-line with the inflation (CPI) of the United States. Event Risk Hedge Lastly, although there have been no significant geopolitical events this year so far, it only takes one to roil the markets. As the table below shows, being in gold in nine out of ten of the events below was a positive when held within an investor portfolio. Summary There are three reasons why investors should own gold and two of them have dramatically spiked in terms of relevance. We believe all advisers should at least consider owning gold through this late economic cycle, where the probability of inflation and volatility is heightened.

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